This competitive renewal application is concerned with the developmental biology of the pulmonary alveolus, specifically focusing on the regulation of differentiation of alveolar type 2 (T2) and type 1 (T1) cells. The differentiation of these cells is crucial to alveolar restructuring associated with lung development, postnatal lung growth and lung repair following injury. During the initial period of this grant we described membrane markers of T2 and T1 cell differentiation and developed several new cell culture systems in which expression of these markers could be studied. We have developed antibodies to several T2 and T1 cell membrane glycoproteins and have established T2 cell and whole lung cDNA expression libraries which we are now using to identify and clone the genes encoding for the differentiation-related proteins. We have developed preliminary data which has allowed us to formulate the hypothesis that is central to the present grant proposal. Alveolar epithelial cell differentiation involves both induction and repression of cell-specific genes. This process is regulated by inducible transcription factors which bind to specific consensus sequences of DNA with this protein-DNA interaction being regulated in part by methylation of the DNA binding sites. The experiments proposed in this renewal application define several genes associated with T2 and T1 cell differentiation, show that they are regulated in the epithelial cell systems which wee have described, and test the hypothesis that transcriptional factors and DNA methylation are important determinants of developmentally-regulated gene expression. In the process we will isolate the DNA-binding proteins that are responsible for inducing expression of the differentiation-related genes. We will also explore the function of the proteins encoded by these genes. The products of this research will be new insights into the control of alveolar epithelial cell differentiation and new information about specialized functions of T2 and T1 cells.